Who Really Won the $1 Billion YouTube–Viacom War?

In Internet time, seven years might as well be forever—many technology companies don’t even last that long. At least some lawsuits do, however.

Just last week, Viacom and YouTube announced they had settled a $1 billion copyright-infringement lawsuit that was once expected to put to rest some of the most important questions about how copyright laws apply online. In the intervening years, many of these issues were settled—most by the market, some in court, and perhaps a few by this suit. YouTube, once a thorn in the side of Hollywood, gradually became respectable, “Chocolate Rain” and all. In the last few years, by investing in original, YouTube essentially entered the media business itself—whether it wants to admit it or not.

To understand how this happened—and why the Viacom-YouTube settlement will help big companies more than little ones—imagine that you founded a video site and you then had to decide what copyright-infringing content to take down. You’d have to keep in mind that users like professional content: In YouTube’s early days, co-founder Steve Chen and product manager Maryrose Dunton both estimated that “copyrighted material” accounted for three-quarters or more of the site’s traffic, according to court filings; YouTube countered, reasonably enough that those estimates were just speculation. (YouTube doesn’t reveal how much of its traffic comes from professional content.) Your lawyer would tell you that it’s hard to be 100 percent sure what content infringes copyright due to the complexities of the law or the possibility that a studio posted material for promotional reasons, as Viacom did. Some content is obviously infringing. But as long as Saturday Night Live clips keep drawing an audience, why would any rational business owner take them down unless the law requires it?

The $1 billion question at the center of the Viacom suit was exactly what the law does require. YouTube argued that the Digital Millennium Copyright Act (D.M.C.A.) gives it “safe harbor” from copyright-infringement liability for the actions of its users, as long as it removes infringing material once it receives notice from a copyright holder. Viacom argued that YouTube still had liability for the behavior of its users since it “induced” infringement, and ignored “red-flag knowledge.” The details get complicated very quickly, but Google won district-court decisions in 2010 and 2013, and the Web site Re/code reported that no money changed hands.

Over the last seven years, though, even as it argued that technology companies have no legal responsibility to filter out pirated content, YouTube also refined its Content ID system, which lets copyright holders track their movies and music, then decide whether to block them or allow the site to sell ads against them. Imagine, again, that you run that video site and you want to make deals with media companies, as YouTube has. Suddenly it would be in your interest to get serious about reducing piracy—which is essentially what YouTube did.

Big companies have an economic interest in doing business with one another, one reason why Viacom and YouTube settled. But if you’re an independent creator without so much content—or an online video start-up without much leverage over studios—you may still have to depend on an unclear law. Although YouTube argued many of its points successfully, in 2012 the Second Circuit Court of Appeals held that sites like it could still have some responsibility—which is one reason a jury recently found MP3tunes founder Michael Robertson liable for copyright infringement.

The current situation is especially unfortunate, because it gives companies on both sides all the wrong incentives. Web sites arguably have an interest in remaining ignorant about what content is on their sites, lest a court find they have red-flag knowledge of infringement. The Web sites’ lack of any concern for piracy motivates copyright holders to send out thousands of D.M.C.A. takedown notices—an expensive burden for independent creators. Some of those notices inevitably turn out to be unjustified, which can result in free-speech issues—such as the removal of a politically important video, with a copyrighted song in the background—although this is rare. The House of Representatives has started to hold hearings on this issue as part of a thorough review of the copyright act. But Congress is even more deadlocked on copyright than it is in general, since both technology companies and copyright holders are reluctant to risk ending up with a law that could be worse for them than the one they have now.

The good news is that YouTube now invests in new video content, which helps technology companies, creators, and users alike. But it’s also worth remembering that, although YouTube* likes to emphasize that Content ID generates revenue for creators, it may be no coincidence that the system was launched just months after Viacom sued.*